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Federal

May 20, 2014

Crikey Clarifier: can the Senate really slay the budget?

Labor and Greens MPs declare they'll block the federal budget in the Senate. Can they follow through? ACIL Allen Consulting public policy and governance expert Stephen Bartos walks through the process.

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Public opposition to last week’s federal budget raises the prospect that the Senate might reject key budget legislation (the House of Representatives, by definition controlled by the party of the government, will pass the budget legislation in its entirety). Can the Senate stop the budget in its tracks?

When is the budget officially announced?

The Treasurer’s budget speech to the House of Representatives on the second Tuesday in May is technically the second reading speech on Appropriation Bill (No. 1). In our parliamentary process the “first reading” announces a bill, a practice that dates from distant English House of Commons days when many parliamentarians could neither read nor write, so the clerk had to read the text of bills aloud. These days the first reading is a formality. The “second reading” is when a government presents the arguments for legislation.

However, the budget speech typically covers almost everything but the Appropriation Bill. It sets out the government’s economic hopes and forecasts, its major budget initiatives, has a few digs at the failings of whoever is in opposition and ends with a message of hope for the nation. It is always thus.

What authority does Parliament provide for spending?

Parliament controls spending. Under section 83 of the Australian constitution, “no money shall be drawn from the Treasury of the Commonwealth except under appropriation made by law” (that’s a reference to Commonwealth funds, not the Treasury department). Appropriations have to be passed by both houses of Parliament.

Total budget expenses are estimated at $414.8 billion in 2014-15. However, Appropriation Bill (No. 1) covers $79.8 billion of that, only 19%. A second Appropriation Bill (No. 2) is smaller, $8.4 billion in 2014-15. Together they mean that the amount of money on which the Parliament votes in the annual budget appropriation bills represents a measly 21% of total spending.

There are good reasons for this. For example, by far the biggest single category of spending is social welfare. The numerous pensions and benefits under the Social Security Act 1991 are automatically paid through ongoing appropriation authority enabled by that act, in what is called a special appropriation. There are many such appropriations. This means that almost 80% of spending receives automatic approval on an ongoing basis — and that a government cannot change the way this money is spent without also changing the underlying acts involved. The details are in budget paper 4, page 75.

Changing how special appropriations are spent requires amendments to the legislation governing them, which means all modern budgets include a raft of accompanying legislation. This year it includes numerous changes to health, social security and education legislation, among others. Without these legislative changes, the budget measures would not take effect.

What parts of the budget does the Senate have to pass? 

Under section 53 of the constitution the Senate is not allowed to introduce any money-related legislation of its own, and is prohibited from amending laws on taxation or the “ordinary annual services” of government. This is why we have two appropriation bills: Bill 1 is for ordinary annual services, which include departments’ expenses, many grant programs and the like; Bill 2 is for other types of payments, including new equity for government agencies and a variety of payments to states and territories.

The Senate is obliged by the constitution to pass Appropriation Bill No. 1.

Contrary to popular belief, in the constitutional crisis of 1975 the Senate did not reject Appropriation Bill (No. 1) — it delayed, sat on its hands and did not pass it.  Even that was enough to precipitate a crisis.

“The Senate can reject or amend … controversial changes such as the doctor and pharmaceutical co-payments …”

What can the Senate reject?

The Senate can reject or amend not only Appropriation Bill (No. 2), but also any of the other bits of legislation outside of Appropriation Bill (No.1) the government needs to make its budget agenda operative. For 2014-15 this includes high-profile and controversial changes such as the doctor and pharmaceutical co-payments, increasing the pension age, restricting Newstart benefit eligibility for young people and university fee deregulation.

Why do we have this arrangement?

The Senate is often known as the house of review. The reason we have a bi-cameral system (Latin for “two rooms”) is to ensure government cannot wildly pass legislation on a whim. This system was heavily influenced by constitutional thinking during the pre-Federation constitutional debates on the appropriate role of government and the importance of checks and balances. The role of the Senate is to consider all proposed legislation carefully, while not thwarting the government from going about its “ordinary annual” business.

What can the government do to get the Senate to pass the budget legislation?

It negotiates. Sometimes the opposition will agree with a bill, which will then pass with an overwhelming majority. Sometimes the government can convince minor parties to support proposed legislative changes and they squeak through. At times, legislation fails to pass the Senate altogether. Negotiations can go on for not just months but in some cases years.

The same legislation can be put to the Senate — and then rejected or amended — many times.

This gives the government another option. If legislation is rejected, and after thee months rejected again, the government can under s57 of the constitution call a double dissolution (an election for every Senate and House of Representatives seat). The Prime Minister recently suggested this was a possibility, but it is unlikely. Calling a new election in order to give the Parliament the power to pass deep cuts to benefits would be a dangerous move.

What does this do to the budget bottom line? 

The budget estimates are prepared on the basis of the government’s policy — that is, they do not second-guess whether or not the government will be able to get its legislation through the Senate; they assume it will. The estimates will, however, be changed if the government itself admits that it has Buckley’s chance of getting the legislation passed and drops the relevant bills.

Thus we are likely to see the present estimates remain in place for many months while the government attempts to get the budget legislation passed.

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